Everspin Technologies, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparative period is Q1 2019. Everspin develops and sells MRAM products and licenses related technology for industrial, automotive, transportation, and enterprise storage applications. Financial statement amounts below are in U.S. dollars.
Key financial results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $10.108 million | $10.026 million | +0.8% |
| Gross profit / margin | $5.351 million / 52.9% | $4.785 million / 47.7% | Margin +5.2 percentage points |
| Operating expenses | $6.933 million | $8.957 million | −22.6% |
| Operating loss | $(1.582) million | $(4.172) million | Loss narrowed |
| Net loss | $(1.732) million | $(4.256) million | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $(0.346) million | $(2.948) million | Loss narrowed |
| Basic and diluted loss per share | $(0.10) | $(0.25) | Improved |
| Operating cash flow | $(2.555) million | $(3.149) million | Cash use decreased |
Liquidity, debt, and capital
- Cash and cash equivalents were $13.950 million at March 31, 2020, down from $14.487 million at December 31, 2019. Cash declined by $0.537 million during the quarter.
- Current assets were $28.732 million and current liabilities were $6.644 million. Inventory was $7.944 million; accounts receivable, net, was $6.320 million.
- Credit facility principal was $8.420 million, with a net carrying value of $7.892 million after debt discounts. The facility is secured by substantially all assets other than intellectual property. The company reported compliance with its covenants at quarter end.
- The company raised $2.084 million net through its at-the-market offering by issuing 468,427 shares. It reported $17.7 million remaining available under the sales agreement but said ATM sales were currently suspended. The revolving line had $3.0 million of stated availability, subject to borrowing-base limits.
- Common shares outstanding were 18,638,555 at March 31, 2020 and 18,664,804 as of May 1, 2020.
Material changes versus Q1 2019
- Product sales rose 6.8% to $9.635 million, while licensing, royalty, and other revenue fell 52.8% to $0.473 million, primarily due to the loss of a customer. Product sales growth was attributed to new products.
- Gross margin improved from 47.7% to 52.9%, which management attributed to better yields on mature products and a one-time benefit from selling previously expensed, fully qualified 1Gb STT-MRAM product.
- Operating expenses decreased in each category: R&D to $3.030 million, general and administrative to $2.800 million, and sales and marketing to $1.103 million. Reductions reflected lower joint-development spending, reduced headcount following restructuring, and lower professional-service costs.
- Revenue mix shifted geographically: APJ revenue increased to $6.896 million from $5.203 million, while North America declined to $1.104 million from $2.189 million and EMEA to $2.108 million from $2.634 million. Four direct customers each represented at least 10% of revenue in Q1 2020; one accounted for 22% and another 12%.
- New design wins increased to 37 from 14. Design wins are not guaranteed to result in production orders or revenue.
Outlook, commentary, and risks
- Management said cash, expected sales and growth, and available credit were expected to meet anticipated cash requirements for at least 12 months from the filing’s issuance. The company nevertheless cautioned that future financing may be needed and may not be available on acceptable terms.
- The January 2020 restructuring reduced headcount by approximately 15%. Management’s stated target was quarterly cash-flow break-even by the end of 2020, dependent on expense control, revenue growth, and product-cost objectives; this is a target, not a guarantee.
- COVID-19 impacts included extended China factory shutdowns, a pause in new orders, slower Toggle demand growth, and reduced demand from some customers and distributors. Remote work also delayed manufacturing-yield improvement projects, affecting cost of sales. The duration and severity of the impacts were uncertain.
- Other significant risks include continuing losses and cash burn, customer and distributor concentration, uncertain MRAM adoption and design-win conversion, competition and selling-price pressure, manufacturing yield and supply constraints, dependence on GLOBALFOUNDRIES for advanced-node production, and credit-facility covenants. The credit facility also includes a material-adverse-effect default provision.
- The company completed its restructuring activity during the quarter and paid $0.373 million in related severance and benefits. It reported no material legal proceedings and no off-balance-sheet arrangements.
- Management stated that disclosure controls were effective at a reasonable-assurance level. A previously identified material weakness in internal control over financial reporting was still being remediated; a new ERP system was implemented January 1, 2020, with monitoring and control enhancements continuing.
Most important facts for investors to verify
- Whether COVID-related demand and supply disruptions, including manufacturing-yield delays, persist or materially affect revenue and margins.
- Whether the improvement in gross margin is repeatable, given the disclosed one-time inventory-related benefit.
- Progress toward quarterly cash-flow break-even by year-end 2020 and the assumptions supporting management’s 12-month liquidity outlook.
- Availability of borrowing under the revolving line, compliance with minimum-liquidity covenants, and the implications of suspended ATM sales for funding flexibility.
- Whether design wins convert to customer production and sales, and whether customer concentration or the loss of a customer creates further revenue volatility.
- Whether the internal-control material weakness is fully remediated and the new ERP and inventory controls operate effectively.